Threat Of A Government Shutdown

Daily Market Commentary for December 15, 2011

Top Democratic and Republican Senate leaders indicated they were closer to a deal that would avoid closing many federal operations with the threat of a government shutdown looming on Friday. (read more at Millennium-Traders.Com)
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Per the Labor Department, first-time applications for unemployment compensation declined by 19,000 to a seasonally adjusted 366,000, putting jobless claims at the lowest level seen since the middle of the 2007-2009 recession. The number of Americans who filed requests for jobless benefits fell last week to the lowest level since May 2008, indicating that a fragile U.S. labor market continues to heal. From a 2011 peak of 478,000 in late April jobless claims have declined gradually and jobless claims have fallen below 400,000 which is a level historically associated with an improving labor market in five of the past six weeks. Over the past month, the average of new jobless claims fell by 6,500 to 387,750 striking the lowest level since July 2008. The monthly average is seen as a more accurate gauge of labor trends because it reduces volatility in the week-to-week data. However, jobless claims reflects only the number of people who lose jobs, not those who find one which is not an imprecise gauge of hiring trends. The steady decline in jobless claims will soothe the concerns of investors as well as the Federal Reserve, which is still considering additional moves to boost the economy. On average, the economy has gained 143,000 jobs over the past three months even after hiring nearly ground to a halt in early summer. For the month of November, the official jobless rate stood at 8.6% however it is actually closer to 16% when including people who can only find part-time work as well as discouraged job seekers who’ve recently stopped looking. For week ended December 3, continuing claims [reported with a one-week lag] or the number of people who continue to receive benefits, rose by 4,000 to a seasonally adjusted 3.60 million. For week ended November 26, nearly 7.45 million people received some kind of state or federal benefit which is up 874,670 from previous week, with total claims reported with a two-week lag.

Labor Department reported U.S. wholesale costs rose modestly during November as the price of food, mostly for vegetables and chicken, increased. The Producer Price Index rose a seasonally adjusted 0.3% last month, mostly driven by higher food prices which rose 1.0% last month. The cost of dry and fresh vegetables jumped 11.5%, while the price of young chickens climbed 8% to mark the biggest increase in five years. Energy costs rose a scant 0.1% after falling 1.4% in October. Core wholesale prices rose 0.1%, excluding food and energy categories. The core PPI is viewed by the Federal Reserve as a more accurate gauge of long-term inflationary pressure because the price of food and energy are volatile month to month. Wholesale prices have risen 5.7% over the past 12 month with the smallest year-over-year increase since March. Core PPI prices have climbed a lesser 2.9% in the past 12 months which is the lowest increase since June 2009. A decline in the price of oil and other essential commodities that peaked in early summer attributed to the pullback in year-over-year wholesale costs. It is anticipated that we could see an ease in coming months for wholesale prices which could potentially translate into lower prices for retail goods and services.

The Federal Reserve reported that industrial production fell during November on a sharp drop in the automotive segment along with other declines in factory output. The U.S. central bank said industrial production declined 0.2% during November, dragged lower by a sharp 3.4% reduction in the output of motor vehicles and parts. Excluding autos, manufacturing output fell 0.2%, reflecting declines in wood products, electrical equipment, textile and product mills, apparel and leather, printing and chemicals. Mining output rose 0.1% and utilities output rose 0.2%. October’s industrial production data were unrevised by the Fed with readings from June, August and September revised higher and July’s industrial production data was revised lower.

During October, foreign investors were buyers of a net $2.6 billion of long-term U.S. securities striking the lowest amount since June and own from $65.6 billion in September. Overall, foreigners bought a net $4.8 billion of long-term U.S. assets in October which was down from $68.3 billion in September. Foreign investors were net buyers of $7.5 billion of Treasurys in October down from $84.4 billion in September. Compared with $7.2 billion in September, they bought a net $3.7 billion of government agency bonds in October. Foreigners demand for corporate bonds remains virtually nonexistent. Sales of Treasurys directly attributed to Mainland China were $14.2 billion in October with China frequently acquiring Treasurys through firms in other countries. Foreign-based investors bought a net $2.9 billion in U.S. equities in the month. During October, the United Kingdom was a seller of $13.2 billion of Treasurys and Japan was a buyer of $22.2 billion.

Philadelphia Federal Reserve Bank reported a sign of solid growth in the factory sector was as New York and Philadelphia regional Fed manufacturing surveys came in stronger in December, now at their highest levels seen since late spring. Phili Fed business outlook index rose to 10.3 from 3.6 in November - highest level seen since April. The Empire state index rose to 9.5 in December from 0.6 in November. Almost one-third of firms in the New York region said business got better in December. The future business index rose 13 points to 52.33.

In November, Capacity Utilization fell to 77.8% from an upwardly revised 78.0% in October; Capacity Utilization has clung to a narrow 0.5% band since July.

Christine Lagarde, the managing director of the International Monetary Fund said European debt crisis is escalating and there must be a global response to resolve it. Lagarde said the crisis must be resolved by all categories of countries, not just one group. Lagarde also made the remark at an event at the State Department focusing on increasing the number of women in public service that the global economic outlook looks “quite gloomy.”


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